The commodities market is a turbulent and difficult arena to trade in but can have huge rewards, let alone have a global impact. Since reaching its peak in March 2008 at over $130 dollars per barrel, crude oil suffered one of its biggest slumps in history falling to low of $40 dollars per barrel just a year later given the financial crisis it operated under. It has recovered to a (relatively) stable price of $70; what does its future hold?
One of its driving forces is the developing nations. With China’s insatiable thirst for oil as a result of its 10% annual GDP growth records as well as India’s storm to high growth have both led to the improvement in its price. For example China’s demand for oil in January 2010 increased by 28% from the preceding year. This rise of the developing nation is predicted to continue further stabilising the market.
The cold weather experienced within Western Europe in the early part of 2010 has also contributed to the oil demand increase further easing speculators’ worries along with a weak dollar.
However these factors may not have a long term stability. With China’s economy overheating (large growth, high inflation and a devalued currency), China may well have its asset bubble burst. Just as the cold weather here subsides, so would China’s economy.
The predictions of increasing prices are based upon China and India continuing their growth; if they don’t then prices will fall as demand diminishes. Iraq’s oil production is increasing at its highest rate to date further increasing the supplies to an already over stocked inventory which will decrease prices.
Overall the price of oil is in the balance, such is the volatility of this market. If China and India continue to grow then prices will increase and further drilling will be undertaken. However prices may have been kept artificially high; the potential for an increase in extraction and a fall of China’s economy could bring the market to its knees.